Good afternoon. My name is Shantel and I'll be your conference operator today. At this time, I'd like to welcome everyone to the MP Materials Fourth Quarter and Full Year 2020 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. Thank you. At this time, I would like to turn the call over to Martin Sheehan, Head of Investor Relations. Martin, please go ahead.

Thank you, operator, and good day, everyone. Welcome to MP Materials fourth quarter 2020 earnings call. With me today are James Litinsky, Chairman and Chief Executive Officer of MP Materials; Michael Rosenthal, Chief Operating Officer; Ryan Corbett, Chief Financial Officer; and Sheila Bangalore, Chief Strategy Officer and General Counsel.

Thanks, Martin. And thanks, everyone, for joining us today. Welcome to our fourth quarter and full year 2020 call. I'm going to cover a few things today. First, I'll recap our strong fourth quarter results capping a milestone year for MP. Second, I'll update you on our Stage II optimization plan at Mountain Pass. Then I will turn it over to Ryan for some color on our performance. And lastly, I'll share some perspective on the current market environment and how we're positioned for it. Starting with the financial highlights. In the fourth quarter, we generated strong production volumes as well as records for both shipments and revenues. These results show that we are clearly enjoying the benefit of strong pricing, which has continued to rise post year-end, but we are also demonstrating operating leverage on a unit production cost basis. You can see the combined effect of these trends and the significant margin expansion we've reported for the fourth quarter. We believe the growth and cost improvement illustrate that we continue to operate our facility at best-in-class levels with both uptime and yields remaining at or near the record levels we've established since restarting Mountain Pass. All told fourth quarter capped an awesome year from a performance standpoint and we are continuing to execute at a high level.

Thanks, Jim, and hello, everyone. Jim already covered a few of the financial headlines and we have all of the details in our press release. So I'll give an overview of how we think about our financial results and share some thoughts on how we're looking at 2021. We delivered impressive growth in Q4 and for the full fiscal year. Jim spoke about the strong demand and pricing environment, which drove the doubling of our revenues in the quarter and the 83% percent growth for the full year. The lifting of import duties in China has also contributed to higher realized prices, but the headline for us as the demand is strong and although we can't predict pricing or shipping schedules quarter to quarter, we expect to continue to sell through all of our production. In addition to the price and sales side of the equation, our adjusted EBITDA benefited from the continued excellent work Michael and his team are doing to improve our processes, reduce risk and ultimately increase the productivity of Stage I. Unit costs were down year-over-year mainly due to these process improvements, which drove a higher average concentrate grade and higher mineral recoveries compared to last year. Put it another way, our improvements are generating higher percentages of rare earth oxides and concentrate and we continue to achieve higher productivity per ton of ore fad . As we continue to effectively manage our per unit production costs, you can see the leverage that exists in this model when demand and pricing are strong. This combination caused our margins to triple in Q4 compared to last year's fourth quarter and was the driver of our roughly 300% increase in EBITDA. Keep in mind that this EBITDA growth includes about six weeks of the impacts of public company costs following our listing. And while we will be seen the full quarter impact of these costs moving forward, we feel good about production costs and our market outlook.

Thanks, Ryan. I would like to take a moment to remind everyone of the extraordinary opportunity unfolding for MP. When we founded the Company in 2017, we saw tremendous potential in Mountain Pass given the incredibly unique nature of the asset and its importance to electrification and supply chain reliability. We were fortunate though to have a few tough years to help us build confidence in our mission and to put in place an owner-operator culture focused on execution. We are now in the early innings of a multi-trillion dollar industrial transformation of the global economy and MP will be a part of shaping the future. Just since our listing on the NYSE in November, it feels like the theme of electrification and de-carbonization is accelerating even faster than most people expected. We see global OEMs including Ford and GM along with their Chinese, Japanese and German counterparts announcing plans to accelerate the transition away from combustion engines. Maybe it can be best sums up by a "the other day" from Herbert Diess, the CEO of Volkswagen, who said, "Our transformation will be fast. It will be unprecedented. E mobility has become core business for us." Here in home, more and more states have adopted California's aggressive clean vehicle standards with several more expected to follow. But of course, I could just remind you about what's happening in the capital markets from cars and trucks to planes and air taxis or from multiple battery technology players, massive amounts of capital are going into SPACs and IPOs to fund electrification. The enterprise value of companies focused around auto electrification now exceeds $1 trillion. And that doesn't even include the other trillion plus from the legacy OEMs. We see a pathway of literally hundreds of billions invested globally over the next five…

Our first question comes from Carlos De Alba with Morgan Stanley. Your line is open.

Thank you. Good afternoon, everyone. So couple of questions if I may. The first one is, so do you expect basically modest volume growth this year with a stable unit cost. Do you foresee any seasonality -- special seasonality throughout the quarters? Maybe as you ramp up more production in second half of fourth quarter, the unit cost will be lower than there will be in the first half. That will be the first question. And the second one, if you could comment please on the rebate that you are getting from the change in the -- the tariff rebate, if you can comment, when do you see that finalizing? And then in terms of the stockpile sales, also how do you see that throughout 2021? Thank you very much.

Sure. Hey, Carlos. Hey, Ryan, why don't you take both those.

Sure. Hey, Carlos. So I'd start on your first one in terms of seasonality. I wouldn't expect there to be significant seasonality from a production basis. I think your view is probably correct in terms of the modest volume growth really taking place in the back half of the year. From a shipment standpoint, as I mentioned, that can be lumpy quarter to quarter and so it's tough to give any great color there. I think over the course of the year, we certainly intend to be selling through 100% of our production, but the individual shipments over the course of each quarter can move around a bit. On the tariff question, the tariff rebate in 2020 was really a one-time item. This reflected a rebate from the tariffs that were in place, the Chinese import duties on our product, up until March of 2020 and related to sales in the first quarter and in prior years. There may be some small amount of remaining rebate left, but not material and not anything that we could predict with certainty coming into 2021. The last piece on stockpile sales, you'll see -- I mean, those are incredibly small, a couple $100,000 a year and relate to legacy stockpiles as you mentioned. I think we'll probably continue to sell out that inventory over time, but not a material driver for us.

Perfect. Thank you very much, Jim and Ryan. Just maybe if I could add one more on the royalty expense to SNR. So, if I understood correctly from what I read in the release, the amount of around 450,000, 440,000 tons that we saw in the fourth quarter that was the last sort of payment before the transaction was completed and a combination was done -- and a business combination was concluded and therefore we should not be seeing these any further -- or anymore in the results, right, from the first quarter on?

Yes, Carlos. That's right. There was no payment from the company to SNR in closing the combination, not just reflects bringing the SNR mineral royalty interest on to the balance sheet of the combined company. But going forward since both SNR and MP mine operations -- or operating business are wholly owned subsidiaries of MP Materials Corp, you will not see any royalty expense in the company going forward.

All right. Excellent. Thank you very much, guys.

Thank you.

Thanks.

Next question?

Your next question comes from the line of David Deckelbaum with Cowen. Your line is open.

Good Afternoon, Jim and Ryan. Thanks for the time today.

Of course, afternoon.

I was hoping that you could -- you highlighted the fact that the third party research firm points to MP and Mountain Pass as the lowest cost producer of NdPr in the world. Could you share what you expect your targeted production cost to be on the per kilo basis once you're at run rate in 2023?

Well, I'll make a quick comment on that question which is remember that obviously today we sell a Stage I product, so we don't currently produce NdPr. The research was saying that when we're complete with Stage II, we will be -- and that's when we're actually selling NdPr. But Ryan, do you want to comment on the model and anything you want to say on that front?

Sure. Yes, I'd say the right way to think about it as we highlighted, we think with the plan that we laid out from the design improvements today, we stand behind our view of the EBITDA guidance we provided for 2023. And so if you just do the math on sort of what we had provided during our go public transaction and just divide that cost structure -- the implied cost structure by the total NdPr we expect to produce that's in the very high 20s per kilogram. And so I think that's the right way to think about it.

I appreciate that. And then, maybe if you could just clarify that you talked about getting to that run rate of just over 6,000 tons per annum once Stage II is up and running and that would be full run rate achieved in 2023. How long do you expect to take to ramp up the capacity from sort of first separation in terms of months or quarters?

Yes, so we haven't said anything specifically about what that ramp is going to look like. What we've said is that assume that 2022 will be a year that consists of that completion, the ramp, et cetera. And then really the best way to view it is normalized 2023. So I'd love to help you but we just really haven't said anything about how that ramp will go other than obviously we will try to get it done as quickly as we possibly can.

One other thing I'd add there David is, obviously we'll continue to sell our concentrate product that is not being consumed by the Stage II ramp up process. So obviously you see the results this quarter and our expectation for the year from a revenue and cash generation standpoint for the Stage I business, so that will continue as we ramp Stage II.

Appreciate that. The last one from me is just you highlighted the Chlor-Alkali sort of capital opportunity, why do you think that you'll have a decision around whether you want to pursue that facility or not in terms of a business opportunity?

So, we don't have a timetable on that. I think the important thing to realize is the substantial progress that we've made with respect to these design improvements where basically we believe that we can deliver on the 2023 operating model improved obviously relative and obviously we're staying on an apples-to-apples basis relative to before. So we think that that's a pretty exciting achievement. With that, we preserve our ability to ramp up Chlor-Alkali, but we haven't obviously -- we're just announcing this today, so we haven't made any -- we haven't stated any public viewers to kind of when and how we would do that other than to say that the way you should think about that is it will be a -- it is now a separate potentially high return on capital event that we will analyze like any investment opportunity.

Absolutely. I appreciate your time guys. I will get back in the queue. Thank you.

Yes, of course.

And our next question comes from the line of Chris Terry with Deutsche Bank. Your line is open.

Thank you. Hi, Jim, Ryan, Michael. I hope you're well. I had few questions. I'll just maybe do it one at a time. First one, just on the reagents, it sounds like an exciting opportunity you have there, just wondering if you could talk a little bit to how are you doing that? Is that the process itself is the same as it was and you just save on the reagents or have you slightly modified the way that you do the separation and that's where the actual savings in the reagents come about?

Yes. So, Chris, thank you for -- we'll give your -- you're giving Michael a chance to chime in here. So Michael, let me take that one.

Thank you, Chris. It's a good question. I think we mentioned in previous presentations that we saw that there are areas for continued improvement and how we operate it with some of the existing assets that are to be re-commissioned and optimization of the new assets that we plan to acquire. And these opportunities grows in our deep understanding of the previous generations of Mountain Pass operations as well as certain industry best practices, particularly in China. So earlier last year, we decided to extend the front-end engineering schedule in order to spend more time on R&D and pilot work before finalizing our process flow and equipment list. So ultimately we developed confidence in some of these development to incorporate that into some design changes in our final process of equipment list. So, some of those -- some examples of that are on the roasting and leaching processes, we work to optimize the roasting and leaching conditions to improve the NdPr recovery, maximize removal and minimize reagent usage. On the leach side itself, we made adjustments to the leach processes to minimize of NdPr that remove leach solids to minimize the amount of RO water that we used and minimize the amount of reagents to use through improved recycling. On the extraction side, we made certain improvements to the processes to reduce reagent use and maximize the production of salable products including non NdPr products. And then on the finishing, the improvement in reagent handling to reduce excess reagent usage relative to our previous model and improve the recycling of materials to improve the yields. And we also made improvements to the finishing process to increase first pass production rates -- first pass on-spec production rates. And this includes sort of enhanced blending capability to blend various stages of production as well as increased storage to enable greater resiliency and flexibility of production. So all these things contributed to leaching side of our reducing reagent usage, which also reduces the amount of spent brine that is produced, some of which we have to otherwise be neutralized which then further reduces the amount of reagents consumed. So those are the types of things that we engage and then we try to generate very high return and make us very confident in this long-term savings.

Thanks, Michael. Appreciate your extra color. A couple of those I just wanted to ask, do you think maybe by the middle of the year or some point early in the second half of the year, you'll be in a position to maybe give more specific timing about the startup of Stage II in 2022? Or how are you thinking about when you provide that update?

So, great question. We totally understand that people obviously want to get as updated as they possibly can throughout the way. We're going to do our best throughout this year to be transparent, let people know what's going on. Hopefully, we'll try to have some business later in the year, so people can kind of see for themselves. And so we will look to do that. But as far as the specific timetable, it's hard to give you something specific other than to say that I understand it's top of mind and investors want to know how we're progressing. And we certainly as a team -- we are execution focus, so we recognize that people want to judge us and measure us against what we say and obviously we want to do that as well. But that may not be a satisfying answer, but we'll do our best to tell you as much as we can throughout the year to keep you aware.

Okay. And then, just moving down a stage to Stage III. Just wondering if you can give an update on how you thinking about that. It's obviously an exciting opportunity if you can do that. But are you thinking about that still you chip away on it while Stage II is going through or you get Stage II up and running and then look at it, just trying to look at sequence of events and how Stage III might ultimately fit in.

So Chris, I'm going to give you a really unsatisfying answer unfortunately, which is we don't have any Stage III updates today. You can expect us to be very opportunistic. So I will leave it at that. And we publicly stated, obviously we have a team working on stage III. So we have a number of people and we will be opportunistic.

Okay. And the last one from me just relates to the market. I guess just getting the views on recent price moves in NdPr that we've seen since the start of the year, the updates from the China production quarter, just any color you can provide in general, particularly on the NdPr? Sorry, thanks.

Maybe everyone can chime in here because obviously when it comes to commodities prices, who knows. What I would say is that our belief is that this is demand driven. I mean, I think everyone can see the headlines around and the growth in the EV space and that is certainly our interpretation of what we're seeing on the ground so to speak. There were also -- around that same time of the quarters you referenced, there're also some headlines of a very senior Chinese officials talking about how they believe prices to be too low given the environmental impact of processing and I believe the exact words were prices reflected the price of earth, not the rarity or something I'm missing of the paraphrasing. But so we -- again as I've very clearly stated who knows what the next month or two look like in the near term. I'm fundamentally of the belief that if you look around the world and see there were 3% percent penetrated just in electric vehicles and we are going to 90% plus over the next few decades and maybe we're going to get there pretty fast given the amount of capital that would be forming in the space, you can do the math on the demand. And then, I think that the other incremental piece here that we tried to touch upon this during the prepared remarks is just I don't think there is a full appreciation for the true replacement cost of getting these assets online. It is our -- to do this right to be an economically viable participant in this space, it's a multi-billion dollar investment. And that if you have the ore body, as you know we have a 7% plus ore body relative to kind of some of…

Thank you. That is helpful. I think that's it from me. Thanks, guys. All the best.

Thank you, Chris.

We will take one more set of questions from Ben Kallo with Baird. Your line is open.

Hey, James. Hey, Ryan, Mark. Thanks for taking my questions. Maybe when Stage II get reversed . I'm just joking.

I was going to make some joke like .

Yes, but you talk about the downstream I think because I think that maybe it would be helpful to figure out how fragmented the margin is and what that really means and then how close to the customer that is and then how you think that, that could help maybe mitigate the price fluctuations in reverse as you move downstream?

When you say the downstream, you're referring to separate it with Stage II, right?

No, stage III.

Yes. Oh, stage III. Well, I'm going to give you the same unsatisfying answer that I again press, maybe I'll say with a little mortgage stuff. But we don't have any Stage III updates at this time, but you can expect us to be extremely opportunistic. So I'll leave that on Stage III, but it might be helpful…

The market like it -- or just in general, in that. And what that does looks like?

Oh, I see. Yes, I think here's what you -- here's the answer to what you're asking even if you're not specifically asking it, which is that we have to remember again that this is a total transformation of the supply chain, right, we've never had an electrification of the OEM market let alone the global economy, right. And so when we think about what the downstream looks like, certainly the downstream today, the magnet industry is controlled in China. But the reality is that as we evolve globally into -- you heard me quote the CEO of Volkswagen, you've certainly seen what's going on globally with investment, is unlikely that there is going to continue to be a single point of failure in the supply chain in the areas where there are viable alternatives. And so we believe that we're positioned really well to provide that. And so the reality is that the magnet business today is mainly concentrated in China. There is a little bit in Japan. But our belief is that we will be part of -- that's obviously core to our mission is that we will be part of the shaping of that as this whole world evolves and again this is just such a huge opportunity when you think about just do the math whenever -- and we've obviously put our slides on this of what you think the magnet business is today for ED as if it's 3% penetrated and goes to 30%, that's a 10 back or roughly maybe obviously scaling , but it's still a huge opportunity and so we plan on being part of that solution. And so the other thing I would say is as far as the magnets, you definitely -- there is a variety of customers at the…

This is Ryan. I'll just add a real quick on that, a couple of thoughts. Adding to what Jim was saying in terms of we don't need to take a ton of share, I mean we get asked a lot about the demand and intensity per electric vehicle and all those things. And certainly you see in our materials, we think the EV piece of the market is growing incredibly fast. But take the entire magnet market leaving capacity between now and 2030 has been double in this industry. And so I think the other thing that's really playing into our favor in a market that already we think needs to double, is I think what a key differentiator will be is access to raw materials. Since we've been active and had conversations with customers, the thing that has surprised me is the amount of time that we have very, very downstream customers all the way down to the OEMs of various types of it, not just electric vehicles. Now coming hand in hand with magnet makers to us, trying to understand, hey, if I sign this contract for magnets, is there going to be NdPr there to back it up. And so I think it's a really critical differentiator being vertically integrated and something that really no one else can do. And so I think that will be the secret sauce, if you will. And to your point on volatility in rare earth prices, I think you've seen if you sort of model over time what margins in the magnet business have done versus rare earth prices. Magnet makers are pretty consistently been able to pass through with some lag, for sure, but I think our fundamental view as well though is, we certainly are not going to subsidize one piece of our business for the benefit of the other. I think, we feel very strongly that they need to stand alone and have their own economic returns and we'll proceed with that view. But the reason we feel good and are interested in this Stage II opportunity is the staying power of those margins and given our view of the scarcity, if rare earth prices continue to go up, our Stage II business will continue to benefit and we do not think that will come at the expense of a potential Stage III. And so I say that, that at a high level is sort of just how we think about that market.

Thank you. That's very good. Maybe two questions and one for you, Ryan, first. Just the leverage ratio that you're comfortable with going value and the structure. And then, James, for you, what are the benefits? Do you have many employees that have been working at the mine for a long time that are there and making sure that you guys are very successful? Then I think it's a huge benefit. And how do you make them feel okay to speed -- I mean -- but just make them feel okay because the mines are in hands of few different people over the years? And now, I'll stop there. Thanks guys.

Sure, I can probably take both of those or Ryan, you can chime in after. On leverage, I feel very strongly that the capital structure of the company needs to be appropriate for the business at the year-end. And certainly we are very mindful of that. We obviously are mindful of the history. And as you've probably heard me say ad nauseam, we want the leverage to be in the price, not on the balance sheet sort of speak. And I would say though that remember that we are, our Stage 1 business is generating cash. We obviously believe that our Stage II business will then be a significant uplift and so there is no doubt that we have made a lot of progress in the business over the last few years. But the power of an owner-operator culture is that we are large shareholders ourselves, we care and we want to make sure that we create long-term value. We're not looking to do anything to shortsighted. So, again the capital structure needs to be appropriate for the business and so hopefully that helps you on the leverage front. And then on the employee front, it's a great question and actually it's an extension of what I just said, which is our owner-operator culture. One thing that people might not be aware, but as part of our public transaction in November, we gave every single non-employee of the -- every single -- sorry, every single non-executive employee of the company a $3,000 bonus as well as -- and that didn't matter your title or whatever, just every employee that's non-executive as well as we recently provided the opportunity for every single employee to be an owner. Everyone got granted 100 shares across. It doesn't matter -- again, doesn't matter your…

Good stuff. Thank you very much.

Of course.

This concludes this conference call. Thanks for attending. You may now disconnect.

Thank you, everyone.